Payroll: it’s how you distribute wages to your employees and withhold the required taxes.
If you pay employees, you need payroll. That means you must withhold income, Social Security, and Medicare taxes from employees’ wages. You also need to pay the employer’s share of those Medicare and Social Security taxes as well as unemployment taxes.
This may sound simple, but there are a nuances to consider as a business owner.
Are you paying independent contractors?
If you are only paying independent contractors, then it’s not considered payroll.
That’s because independent contractors are generally considered self-employed. You simply need a way to get them the funds, like writing them a check or transferring the funds electronically. And you’re typically not responsible for withholding their taxes.
Are you paying yourself as an employee?
Depending on the type of business entity you own, you may be required to give yourself a salary as an employee. If that’s the case, you’ll have to run payroll in order to pay yourself.
Federal rules affect whether a worker is classified as an employee or independent contractor, and whether you withhold payroll taxes. But it’s always a good idea to consult a tax advisor if you have questions.Updated September 26, 2017
This article provides general information and shouldn’t be construed as tax advice. Since tax rules may change over time and can vary by location and industry, please consult a CPA or tax advisor for advice specific to your business.